None the less, in several threads - most particularly the SEM economy thread - the issue of finance is becoming more important. An unfortunate side effect of delving in to grand strategy. It bears examining. A few thoughts:

1) TFLY pointed out that the SEM probably has large amounts of foreign specie. Relevant to them, and the rest of the honorverse, the Sol was presumably the universal currency of trade with Manty-Buck doing brisk work in the Haven sector and near the junction. I highly doubt the Sol was a pegged currency. As a fiat currency, it's value is probably plummeting as of the end of UH. Do we expect currency holders (aka, people and entities saving money), debt holders (people who bought bonds and the like), and anyone with fixed payment schemes (pensions, for example) to crash with it?

2) In reverse, the manty-buck is about to become much, much stronger. Can Manticore's export industry survive a suddenly very valuable currency? Can its merchant marine remain competetive when Sol based hulls are so much relatively cheaper after the currency swing, and large opportunities to muscle in on a classic Manty industry arise?

3) Do we think remaining league governemnts will continue to trade in the inflated Sol, move to local currencies, or aim for manty-bucks?

4) Most debt/credit insitutions in the honorverse prior to this presumably loaned off the Sol. If it starts going down, can the league survive a run on its banks as people and corps look to convert to material goods?

GloriousRuse wrote:TFLY pointed out that the SEM probably has large amounts of foreign specie. Relevant to them, and the rest of the honorverse, the Sol was presumably the universal currency of trade with Manty-Buck doing brisk work in the Haven sector and near the junction. I highly doubt the Sol was a pegged currency. As a fiat currency, it's value is probably plummeting as of the end of UH. Do we expect currency holders (aka, people and entities saving money), debt holders (people who bought bonds and the like), and anyone with fixed payment schemes (pensions, for example) to crash with it?

Since I am not an economist, my opinion need not carry any weight; but do we really expect the to Sol to crash (that is: go down and stay down)? The core worlds had very strong economies and they have hardly been touched by the war: the main effects are the loss of exploitable worlds in the Verge and the cutback in long haul trade due to Laocoon. Aside from the loss of orbital infrastructure at Sol, the only damage was psychological with the loss of the feeling of invincibility in the SLN. However the rebooted Solarian League (despite any defections) is still the strongest economic unit in all known space. So there is no reason, that I can see, why the Solarian currency will not rebound once trade returns to normal.

Did the SEM just have large amounts of specie or did they invest much of it in foreign enterprises?

None the less, in several threads - most particularly the SEM economy thread - the issue of finance is becoming more important. An unfortunate side effect of delving in to grand strategy. It bears examining. A few thoughts:

1) TFLY pointed out that the SEM probably has large amounts of foreign specie. Relevant to them, and the rest of the honorverse, the Sol was presumably the universal currency of trade with Manty-Buck doing brisk work in the Haven sector and near the junction. I highly doubt the Sol was a pegged currency. As a fiat currency, it's value is probably plummeting as of the end of UH. Do we expect currency holders (aka, people and entities saving money), debt holders (people who bought bonds and the like), and anyone with fixed payment schemes (pensions, for example) to crash with it?

2) In reverse, the manty-buck is about to become much, much stronger. Can Manticore's export industry survive a suddenly very valuable currency? Can its merchant marine remain competetive when Sol based hulls are so much relatively cheaper after the currency swing, and large opportunities to muscle in on a classic Manty industry arise?

3) Do we think remaining league governemnts will continue to trade in the inflated Sol, move to local currencies, or aim for manty-bucks?

4) Most debt/credit insitutions in the honorverse prior to this presumably loaned off the Sol. If it starts going down, can the league survive a run on its banks as people and corps look to convert to material goods?

Smarter folks are free to add their own questions.

2)

How much you bet that Queen Elizebeth had the foresight to liquidate Solarian Legue assets from the Crown Purse before implementing Case Lacoon 1 & 2 because she understood that this economic warfare would ravage the value of SL currency? I also wager that Queen Elizebeth was in the background interceeding with Manticoran shippers and their clients to simply buy diverted cargos of fabrication modules and other critically needed stuff to rebuild Manticore's orbital industrial infrastructure? How much you bet that Queen Elizebeth used remaining cash reserves to buy up even more critically needed stuff after Honor Harrington's little visit to Sol system tanked the SL economy?

GloriousRuse wrote:TFLY pointed out that the SEM probably has large amounts of foreign specie. Relevant to them, and the rest of the honorverse, the Sol was presumably the universal currency of trade with Manty-Buck doing brisk work in the Haven sector and near the junction. I highly doubt the Sol was a pegged currency. As a fiat currency, it's value is probably plummeting as of the end of UH. Do we expect currency holders (aka, people and entities saving money), debt holders (people who bought bonds and the like), and anyone with fixed payment schemes (pensions, for example) to crash with it?

TFLYTSNBN wrote:How much you bet that Queen Elizebeth had the foresight to liquidate Solarian Legue assets from the Crown Purse before implementing Case Lacoon 1 & 2 because she understood that this economic warfare would ravage the value of SL currency? I also wager that Queen Elizebeth was in the background interceeding with Manticoran shippers and their clients to simply buy diverted cargos of fabrication modules and other critically needed stuff to rebuild Manticore's orbital industrial infrastructure? How much you bet that Queen Elizebeth used remaining cash reserves to buy up even more critically needed stuff after Honor Harrington's little visit to Sol system tanked the SL economy?

Perhaps the Queen did something with the Crown Purse, but anything else is a matter for the government ministers who control fiscal and financial policy, which she does not. In particular the large amounts of foreign specie that Manticore holds is controlled by the government, not the Queen.

Also what evidence could we possibly have that the Solarian League economy tanked, because of orbital damage at Sol and the loss of prestige of the SLN?

tlb wrote:Also what evidence could we possibly have that the Solarian League economy tanked, because of orbital damage at Sol and the loss of prestige of the SLN?

If it’s anything like the US, killing everyone inside the beltway on a workday wouldn’t be a major economic loss to the US. It would certainly be bad for those impacted (and for those who did it when they get found) but I have my doubts that killing off the bureaucracy and the 535 princlings would actually be bad for the economy in the long run.

tlb wrote:Also what evidence could we possibly have that the Solarian League economy tanked, because of orbital damage at Sol and the loss of prestige of the SLN?

kzt wrote:If it’s anything like the US, killing everyone inside the beltway on a workday wouldn’t be a major economic loss to the US. It would certainly be bad for those impacted (and for those who did it when they get found) but I have my doubts that killing off the bureaucracy and the 535 princlings would actually be bad for the economy in the long run.

Not even that much damage, since we do not know of anyone that died. I do not remember how many core worlds there are in the League and we are not sure how many will secede, but surely over 99% of the economy is intact and working.

tlb wrote:Not even that much damage, since we do not know of anyone that died. I do not remember how many core worlds there are in the League and we are not sure how many will secede, but surely over 99% of the economy is intact and working.

We have ample evidence that the League Government -- specifically the SLN and Mandarins -- was fast going broke. But the League as a whole is almost totally unaffected. Some transtellar corporations suffered, and worlds heavily invested in, or dependent on, those corporations would have suffered as well.

There is going to be a general perception that Solarian Credits are losing value, but I doubt that it will last long or be severe enough to cause a "Great Depression."

As a fiat currency, I don’t think the Sol will tank because of actual economic damage done. It will tank because the backing government was literally just kicked out and a new government is going to be formed...somehow.

Basically, a fiat currency is reliant on faith in the government and its central banking system. Basically, other than the fact that you can only pay your taxes in it, the government will only pay you in it, and the government decrees it’s legal tender, there is nothing backing it. Just an assumption that the government is good for it and won’t screw with the money supply.

This inherently requires faith in the national economy, but that is merely nessecary - not sufficient.

So, when you collapse the government and put a new one in at gunpoint, you have significant issues with currency. Faith issues and supply issues.

For instance, a few investors are probably reading the tea leaves and saying “ah, brand new government that will be years in the refining, in the middle of prosperous systems leaving, and the manties guarantee the right of secession for anyone who wants out of the tax burden gets high...plus they just stripped the protectorates...and who knows what transtellars are going to get screwed because the SEM just declared any “private solarian entity” lost its property rights in the protectorates...”

And they will not be giving the government favorable bond rates. Or betting on the Sol.

And taxes are never favorable. Especially not when the old government literally was forbidden from taxing and the new government still has its constituent systems right to secede guaranteed bums thy guns they can’t beat.

And there may be reparations. Or the loss of property by a different name to make up for “all the injustice”.

Plus, the treasury is empty.

————

On one side, the government can stay broke and watch its ability to provide services collapse...weakening the Sol.

As I said, you are using a too simplified version of how the SL currency works.

Duckk reposted this info dump from David the last time we had this discussion.

Reposting an old infodump:

About money . . . .

I haven't even peeked at the threads on money or speculation on how the financial system works in the Honorverse. I'm sure there's all kinds of neat stuff in there, but my own thoughts on the subject have shaped the way I've seen the conflict between Manticore and the Sollies shaping up from the beginning. I imagine that trained economists could pick all kinds of holes in my basic assumptions, but this is the systemic foundation for financial transfers and institutions which has underlain the series from the beginning.

The financial system in the Honorverse is both very modern and very archaic to our 21st-century eyes. It is modern in the sense that virtually all currencies are "abstract," based on something other than, say, precious metals, and very archaic in that there is no interstellar equivalent of instantly verifiable wire transfers or similar financial instruments. Everything has to be transported physically between star systems.

This results, among other things, in a two-tier financial system. Within a star system, transfers can be instantaneous or very close to it. Electronic delays are counted in minutes, not hours or days or weeks, and so there is very seldom a physical transfer of cash or cash equivalents. As a result, the mechanics of intra-system economies are “paperless,” with procedures which can easily extrapolated from our present-day experience.

Between star systems, things get trickier. Here, something has to be physically carried from Customer A to Customer B, which is where institutions like the Banco de Madrid really come into their own. Interstellar financial transfers come in many styles and flavors. The example which was used in Torch of Freedom was of the Honorverse equivalent of cold cash, or possibly what we might think of today as bearer bonds. There are many, many other types of financial instruments, the majority of which are usually some variation of a letter of credit, stock certificates, or bonds.

As far as the currency itself is concerned, the argument has been made that the Solarian League, because it has no government in our sense of the word, cannot issue currency. This is in error. Or, rather, not entirely correct. The Solarian League was expressly empowered to create a currency when the Solarian Constitution was written. It does this through a network of chartered banks (one of which is the aforesaid Banco de Madrid), which was originally built around banking institutions which predated the creation of the League. Prior to the creation of the League, those banking institutions operated much as the great banking houses of Western Europe did during the Renaissance, resulting in a high degree of risk and a correspondingly high interest rate, both of which were . . . detrimental, shall we say, to the establishment of a sound interstellar economy, which was, after all, the primary reason for the creation of the Solarian League in the first place.

You can think of the individual members of the League banking network as "sector banks," if you like, since they are distributed around the League in order to facilitate transfers of data and credit. They are closely regulated by the Solarian League government (i.e., by bureaucracies like Agatá Wodoslawski's Treasury and Omosupe Quartermain's Ministry of Commerce) both in terms of banking practices and in terms of cash reserves. The cost of the regulators and inspectors is paid out of "service fees" generated as part of the banks' overhead as a very, very low percentage surcharge on all bank transactions, which also serves as the primary funding for the League Deposit Insurance Agency. When I say a very, very low percentage surcharge, that's precisely what I mean; it's so teeny as to be unnoticeable by virtually all consumers, but it's also (legally) dedicated to supporting the financial/banking system and cannot (legally) be used for any other purpose since it does not (legally) go into the League Treasury's General Fund. (You did notice that I said "legally," I trust?) As part and parcel of the regulatory process, the Treasury regulates the exchange rate between Solarian and other currencies, although the actual value of the Solarian credit is, of course, determined by the currency-trading market. Each bank's credits are issued by that bank and backed by that bank's total reserves and deposits, and the League regulatory agencies with bank oversight are required to ensure that no bank issues a total number of credits in excess of its reserves and deposits. In the event that a bank should experience a failure anyway — as the result of a short-term run or for some other reason — the LDIA steps in to insure deposits and also to ensure that any legally issued credits of that institution will be honored. Obviously, the LDIA is legally required to maintain a fund which is huge in absolute terms although it is proportionately quite small in comparison to the overall League economy.

In essence, the value of any currency in the Honorverse is notional, but while it is not backed by physical bullion or other "precious commodity," it is backed by the assets of the issuing authorities and indirectly by the "faith and credit" of the League government. Within the League, those issuing authorities on the sector banks and their currency is backed by their total assets, yet the existence of the LDIA effectively pledges the League to stand behind the sector banks, and so — ultimately — the real "security" for these Solarian credit is the Solarian economy itself, which is so huge and so widely spread as to be virtually invulnerable. Portions of the League may experience economic downturns, but in the entire history of the Solarian League (previous to current events, at least) there has never been a League-wide financial crash, and the LDIA coupled with Treasury and Commerce's regulatory agencies have been able to smooth out even some very severe economic bumps in the road. In the final analysis, no one has ever believed for a moment that the League could go bankrupt, and since the entire reason for the creation of the League in the first place was to regulate and secure interstellar commerce, it was given constitutional authority in terms of the banking industry in general that it was very deliberately not given in other "national policy" areas. (This is one reason why both Wodoslawski and Quartermain are Mandarins.) Moreover, the League is required by its constitution to bolster the LDIA out of the general fund, if that becomes necessary, as a first charge on its resources. That is, it would be constitutionally required to divert funds from, say, the SLN's budget to cover LDIA expenses, if the balance generated by the transfer fees proved insufficient. Although the League's legal revenue sources are constitutionally limited in order to preclude the growth of a huge and hugely powerful central government (at which, obviously, the drafters of the constitution ultimately failed), the absolute amounts generated by the network of legal service fees are vast, and prior to the current tension with Manticore, confidence in the ability of the League to honor its debts has generally been very high. Estimates of the percentage of total government revenues which are lost to corruption and graft run as high as 15% of gross revenues, but that still leaves an enormous amount of cash in the till.

All of the sector banks maintain in-house interstellar accounts through which transactions can be moved. For large economic transactions, such as those between transstellars and their customers/suppliers, letters of credit are the customary form of transfer. These are specifically authorized at the time of issue and are automatically accepted — subject, of course, to verification of all security codes — by the local branch of the issuing sector bank or one of its banking partners at the destination system. In essence, they are internally verified when they are presented. (There are occasional instances of embezzlement or similar bookkeeping fraud, but they are normally covered by insurance — or, in a handful of particularly spectacular cases, by the LDIA — and are virtually never on a scale which could threaten the overall system.) Smaller transactions, such as those by travelers or private individuals, are usually handled electronically on an intra-system basis or using credit chips similar to those used in Torch of Freedom on an interstellar basis. The credit chips can be thought of as either currency or as travelers checks, whichever way works best for you. They are bank instruments of a particular value issued by a non-governmental bank but so subject to regulation and oversight that they are in effect a government-backed currency.

Other star nations issue their own currencies. For most star nations, this will be an intra-system currency, since most star nations are single-star polities. Star nations with multiple star systems like the People's Republic of Haven (which is the largest non-SL star nation currently in existence) generally use a system similar to the League's, except that most such star nations have central banks which are government institutions rather than working through the quasi-private system of sector banks used by the League. Obviously, the PRH's shaky economic condition meant that its currency was sharply devalued, which only added to its problems prior to its ill-advised clash with the Star Kingdom. In fact, while Rob Pierre was busy reforming the PRH's economy, his currency was virtually worthless for any interstellar transactions outside the People's Republic itself. Needless to say, that didn't make his task any easier.

Manticore, because of its strategic location in the transportation system, is an obvious financial hub, and the majority of the League's sector banks have/had local offices in the Star Kingdom. Several of the local branch managers have strongly advised their superiors "back home" to convince the League government to back off on confrontation with the Star Empire, but most of their warnings have been couched in terms of the damage Manticore could inflict on the League's financial institutions rather than on an appreciation of the Manties' war-fighting technology. As such, they were initially disregarded by bureaucrats who thought they could rely upon the Invincible Solarian League Navy to enforce a military solution in their favor. Wodoslawski and Quartermain were far more sensitive to the bankers' warnings, and have a far better appreciation of the potential damage the SEM could inflict upon the League's economy. Nonetheless, even they have failed to appreciate the threat Manticore poses to the League's fundamental financial structure. No one in the League has the least experience dealing with an opposing star nation which is actually in a position to seriously damage the League's economy, and the notional value of the League's currency depends on the stupendous, monolithic strength of its economy. If that economy tanks, one can expect the League's currency to tank, as well, and no one in the entire galaxy has any clear notion of what would/might happen if the League's interstellar economy essentially collapses.

On the other hand, there might be one or two economists in the Mesa System who could have been considering possible ramifications in this direction for, oh, the last few years or so.